Purchasing a Business – What Could Possibly Go Wrong?

By 16 April 2020Commercial Law
Purchasing a business

So, you’ve opened the chilled bottle that has been waiting expectantly for the last six weeks or so and you are celebrating the purchase of your new business. You know that tomorrow will be one of the most anticipated days in your life as you are finally going to open the doors of YOUR new café for the first time.

You have put everything in place for your opening day: Since the settlement of the business, you have cleaned the premises, completely redecorated and organised your space. You have ordered the new menus, organised your staff and finalised all of the fiddly paperwork. You have forgiven the previous owner for the broken cash register and have become proficient in fixing wobbly table legs.

Your name is now in lights on the business and you know that you have done all you can before you open the doors. Or have you?

You do recall that your legal representative explained the Business Contract to you and discussed your obligations in the Lease. You vaguely recall the requirements for the staff to be transferred to you but are confident that this has been done correctly.

You are satisfied that the ovens, fridges and freezers are in excellent working order and in fact you are satisfied, due to the fact that they were so nice and new when they were transferred to you. Very new in fact!

What your legal representative failed to tell you, was that there is a very good chance that the kitchen goods are under an Equipment Purchase Agreement and that the previous owner (who couldn’t fix the cash register!) still owes money to the equipment provider. The previous owner does not fully own the equipment and did not pay the balance of the debt due under the Agreement. It was therefore not transferred to you as you expect.

Your head hits the pillow at 2.45am and you haven’t considered that the lovely new equipment you will use tomorrow is actually not owned by you.

Tomorrow arrives and you have arranged for the opening to be a headline in the print, broadcast and social media. You have a food blogger arriving and the place is packed. Unbeknownst to you, between settlement and your big opening day, the previous owner has been chased for payment of the balance of monies owing on the kitchen equipment and will not pay. Why should he? It was not a requirement under the Contract? Anyway, he really doesn’t have the $80,000.00 to pay!

Amongst your guests is the actual owner of the equipment who would now like to remove all of the kitchen equipment. Immediately.

What can you do to stop this happening? Nothing at all, other than to come up with the $80,000.00 required to pay for the equipment. You barely have $8.00 after you have spent all you have to turn the café into your dream.

You now have the newest trendiest café in town without any equipment. You cannot cook. You cannot serve. Your guests are angry and suddenly your most anticipated day has turned into nothing short of a nightmare. After the disgruntled crowd has left and you know that tomorrow’s headlines will be a major marketing disaster, you realise that not only do you not have any equipment, you still need to meet those obligations under that Lease your legal representative talked to you about, ie payment of rent, and suddenly your dream has very quickly disappeared.

Your representative made a very costly mistake. Your dream is now ruined despite all the plans you put in place and the money spent.

Do not let your dream of buying a business overshadow your need to have someone experienced in the purchase of businesses to help you to achieve that dream. One of your major investments is to obtain accurate and clear legal advice that will protect you not only when you purchase your business but also well into the successful operating of your business.

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